This series of blogs is to help my friends and clients that have taken the gamble of renting their current home and purchasing their next home. Being the accidental landlord is not easy, but with some planning and evaluation it can be a fantastic financial move for your future.
How do you make money? Charging Rent!! But making money is not only gauged on monthly cash flow, as it can relate to monthly gain in equity and increase in property values. Being the Accidental Landlord and finding the perfect rental rates is a fine line to be walked. You never want to be so high that no one will afford the rent for that property. You never want to be so low that no only do you lose money each month, you attract a less than equitable tenant.
When looking at how much to charge you need to survey the neighborhood. It should reflect and expensive mortgage and some of my clients have done a straight $1 for every $1000 in property values. If you house is worth $150,000 you may be charging $1500.00 per month in rent. This obviously only holds true if the neighborhood supports it and the current market demand. You will also need to associate your monthly expenses to own the home with the amount of money you would like to make each month on cash flow and equity growth. This is a great time to ask a pro what some of the costs may be that most homeowners do not consider while they live in a property.
High rent is ideal and if nudged just above the neighborhood average, you will have a good chance of attracting a more affluent tenant that can make that monthly payment no problem. What you don’t want to do is go too high. It is exciting to look at the cash flow numbers when you start to increase the ideal monthly rent up but it can be a dangerous tactic. Balancing the risk of longer vacancy to get a higher rent can backfire to where you would have been better off potentially leasing it at a lower rate immediately.
Low rent is nice because it keeps the property vacancy at a minimum and is it makes for happy renters. But to the flip-side of that, you don’t want to attract a tenant that does not value the rent being paid. Many times renters that pay little rent do not take as much pride in a home as the higher paying tenants.
Nevertheless, finding the right tenant at either price point is key and if you do your homework and do some planning you can find an ideal rental rate and the perfect renter.
-curt
